📚 Learning Guide
Cross-Price Elasticity of Demand
medium

If the price of coffee increases, what is likely to happen to the demand for sugar, assuming they are complementary goods?

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Choose the Best Answer

A

Demand for sugar will decrease

B

Demand for sugar will increase

C

Demand for sugar will remain unchanged

D

Sugar will become a substitute for coffee

Understanding the Answer

Let's break down why this is correct

Answer

When the price of coffee goes up, many people will buy less coffee because it costs more. Since coffee and sugar are complementary goods, this means they are often used together. If people buy less coffee, they will also need less sugar because they usually use sugar to sweeten their coffee. For example, if someone usually drinks two cups of coffee with sugar every day but now decides to cut back to one cup due to the higher price, they will also reduce the amount of sugar they buy. Therefore, the demand for sugar is likely to decrease as the price of coffee increases.

Detailed Explanation

When coffee costs more, people buy less coffee. Other options are incorrect because Some might think that if coffee is more expensive, people will buy more sugar to enjoy it more; It's a common mistake to think that the demand for sugar won't change.

Key Concepts

Cross-Price Elasticity of Demand
Complementary Goods
Market Behavior
Topic

Cross-Price Elasticity of Demand

Difficulty

medium level question

Cognitive Level

understand

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